The Companies Act 2006 gives the courts a range of powers to assist shareholders who have been...
The Companies Act 2006 gives the courts a range of powers to assist shareholders who have been unfairly prejudiced by the way a company they hold shares in has been run. Recently, the High Court found that a man had suffered unfair prejudice after he was accused by his fellow director and shareholder of a conspiracy to create a competing business.
The two men were the directors and voting shareholders of a company whose principal business was the conversion of vans and the sale of van accessories. In May 2023, one of them resigned as a director of a dormant company he owned and transferred his shares in it to his wife, his son and another man, all of whom worked for the van conversion company.
His co-director saw this as a betrayal of their relationship, and considered that there was a conspiracy between the man and the previously dormant company's shareholders to create a company that would compete with, and undermine the commercial viability of, the van conversion company. He sent letters accusing them of fraud and other criminal offences and threatening legal action. He took steps to exclude the man from the management of the van conversion company and transferred its assets to a company of his own.
They each sought an order under Section 996 of the Act that the co-director should buy the man's shares in the van conversion company. The man argued that this should be based on its value in May 2023 and also sought compensation for lost salary and dividends. His co-director claimed that a valuation as of November 2023 should be used, six months after the previously dormant company had started trading, and that he should be compensated for the loss in the value of his shares as a result of the man's conduct.
The Court accepted the evidence of the man's son that it had been his idea to use the previously dormant company as a vehicle through which he could carry on business on his own account. The Court found that the man's role was limited to providing general advice to his son. There was an absence of evidence of a conspiracy to run down the van conversion company's business. The Court had some sympathy with the co-director being upset about the involvement of the man's wife and the other employee. It would undoubtedly have been prudent for the man to have talked this through with him. However, if he had raised his concerns with the man, everything would have explained to him. Instead he had sent the letters, which were described by the Court as 'incendiary'.
It could not seriously be doubted that the co-director had acted in a way that had unfairly prejudiced the man's interests as a shareholder in the van conversion company. The combined effect of his actions had been that its value was seriously diminished.
The Court considered that the appropriate relief would be to order the co-director to buy the man's shares valued as at May 2023, before the unfair prejudice occurred. Noting that that valuation would include the right to future dividends and that the man had done no work for the company since his exclusion from it, the Court declined to award further sums in respect of lost wages or dividends. The Court concluded that a fair value for the man's shares was £294,785.